Warehousing operations become necessary especially for two reasons so far as export marketing is concerned. These are:
Break bulk: Break bulk operation are called for where the manufacturer ships the goods in bulk and then repacks them into small consignments according to the orders received from individual customers. In export operation this system may prove to be a cost saving device, especially when individual orders are so small that the minimum space stipulation of the shipping lines cannot be fulfilled. Shipping if the shipper’s requirement is smaller than the minimum, he has to pay the freight for the minimum space.
Re-assembly operations are also critically important for many export items, especially for engineering goods. In order to save shipping space many items are exported on CKD (Completely Knocked Down) condition In fact, there are certain countries where the governments insist that the goods must be imported in CKD condition. Wherever shipments are made on this basis the exporter will need warehousing facility in the importing country where the goods can be re-assembled.
Here are other commercial factors as well which may make warehousing facility an essential instrument for successes in export marketing. Some of these are:
1. Most companies in Western Europe or the USA maintain very low inventories. They expect the deliveries to be made at very short notice. In order to compete with them, overseas suppliers must also be able to provide the same service which will be possible only when adequate stocks are kept in the warehouses in that country.
2. Many countries have instituted quota limitation on the import of some sensitive items, such as textiles or footwear. These quotas are global quotas and are administered on first come first served basis. Therefore, it becomes extremely important for the exporters to perfectly time the shipment of the export consignments in order to beat the quota regulations. One of the common ways to do is to ship the goods in such a way that consignments will reach the port of the importing country just before the quota is opened, which is mostly at the beginning of the fiscal year. The goods are kept at the bonded warehouse and released since the quota is opened.
3. There is also a system of tariff quota under which imports up to a certain pre-determined limit are allowed duty free or at a lower rate of duty. Once the limit is reached, imports can be made only on the payment of a higher rate of duty. This system is extensively used in the generalized system of preference as being operated by the EEC. Since importers would like to take advantage of the lower rate of duty, they would place orders with such overseas suppliers who can assure a delivery schedule which will bring the consignments just at the beginning of the quota period. By having extensive warehousing arrangements, developing countries remarkably well in capturing very substantial proportion if imports under the tariff quota system in the EEC.
4. Importers of sophisticated engineering products insist on timely availability of spare parts and other types of after sale service. Maintenance of adequate supply of spare parts, in fact is one of the prime conditions for successes in the export marketing of engineering goods. A large plant may remain completely out of operation in the absence of single critical spare part. Importers are, therefore most reluctant to order equipment from a party who cannot promise adequate supply of parts an after sale service within the shortest possible time. It becomes therefore imperative for exporters of engineering goods to warehouse sufficient stocks of spare parts.
Government if India has allowed the setting up of a warehouse for engineering goods at Rotterdam. The Engineering Export Promotion Council has set up and operates with the Ministry of Commerce funding 60 per cent of the recurring and non recurring expenses on the warehouse of the first three years. The warehouse will initially stock easily saleable items such as small cutting tools, sub-assemblies etc. The idea behind the warehouse is to cater to the European market on a continuous basis with off-the-self delivery offers. This would retain India its share in the world engineering market.